Investment Banking:
Public and Private
Placement

You can download this presentation at:
www.cleverpresentations.com
Please visit www.cleverpresentations.com for more
presentations on marketing, strategy
and case solution

FIGURE 1-1
Distribution
process in
investment
banking

FIGURE 1-2
Allocation of
underwriting spread

FIGURE 1-4
Internet Capital Group common stock
price (as of May 6, 2003)

Slides Outline
What is Investment Banking?

Functions of the Investment Banker

Underwriting Spread

Public vs. Private Companies

Advantages and Disadvantages of a Public Company

Initial Public Offering and Leveraged Buyout


What is Investment Banking?
Investment Banking deals with primary offerings of new

securities
The Investment Banker serves as the intermediary or

link between the corporation and the investor
Brings the two parties together by channeling money

from one to the other

Functions of the Investment Banker
Underwriter:
–buying the security and reselling it to the public
– the risk-taking function
Market Maker:
– ensuring an available market by buying and selling the security
Advisor:
– providing advice on the issue
Agency Functions:
– negotiating the best possible deal for the corporation

Underwriting Spread
Spread represents the compensation for

those participating in the distribution
Spread = Public Price - Issue Price
It is shared by all the participants

Spread on common stocks is greater than

the spread on bonds

Public vs. Private Companies
Public company:
– when shares of a company are offered to the public
– anyone can buy shares of the stock
Private company:
– privately owned or held by an individual or family
– not available to the general public

Advantages and Disadvantages of a
Public Company
Advantages of being public:
– greater availability of funds (easier to grow and raise
money)
– prestige
Disadvantages of being public:
– company information must be made available to the
public (opening the company up to public scrutiny
and criticism)
– high costs of going public (expensive)

Initial Public Offering and
Leveraged Buyout
Initial Public Offering (IPO):
– when a company sells its stock to the public for the
first time
– the company becomes publicly traded
Leveraged Buyout (LBO):
– money is borrowed to repurchase all the shares of
the company resulting in a great deal of debt
– when a company “goes private”